FCA calls for more innovation to help consumers find the best mortgage deal

May 4, 2018

The FCA has identified a number of ways in which the market could work better for some people. The FCA’s proposals are particularly aimed at helping customers find the best-priced suitable mortgage deal. The FCA also wants to help longstanding borrowers who are currently unable to switch to a better deal, often referred to as ‘mortgage prisoners’.

Christopher Woolard, Director of Strategy and Competition at the FCA, said:

“The mortgage market is one of the largest financial markets in the UK and there have been significant changes to the market since the financial crisis in order to ensure that we do not return to the poor practices of the past.

“For many the market is working well with high levels of consumer engagement. However, we believe that things could work better with more innovative tools to help consumers. There are also a number of long-standing borrowers that have kept up-to-date with their mortgage repayments but are unable to get a new mortgage deal; we want to explore ways that we, and the industry, can help them.”

The FCA’s interim findings show:

high levels of choice and consumer engagement: over three quarters of consumers switched to a new mortgage deal within six months of moving onto a reversion rate; and

little evidence that current commercial arrangements between firms are leading to poor consumer outcomes; but

there is no easy way for a consumer to be confident, at an early stage, of the mortgage products for which they qualify – this is a significant impediment to shopping around;

a significant minority of customers (around 30%) fail to find the cheapest mortgage for them; and

a number of longstanding customers would benefit from switching away from a reversion rate but cannot, despite being up-to-date with payments; most took out a mortgage before the financial crisis.

The FCA has identified a range of potential ways to make the market work better for consumers. These include:

making it easier for consumers, at an early stage, to identify for which mortgage products they qualify, to assess and compare those products and, ultimately, to take out a mortgage;

removing barriers to innovation in the sale of mortgages, including those due to aspects of FCA advice rules and guidance;

making it easier for consumers to assess the strengths of different mortgage brokers. The FCA intends to work with the broker sector to develop metrics to help consumers compare brokers;

helping certain longstanding borrowers who cannot switch. The FCA intends to explore options to help these customers, for example an industry-wide agreement to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up-to-date with payments.

The FCA is consulting on its interim findings and proposed remedies. It intends to publish a final report around the end of the year and will consult on any specific changes required to its rules.

Notes to editors

Market studies enable the FCA to take a holistic look at competition in a market, assessing how consumers and firms behave and interact.

The Mortgages Market Study looks at first-charge, residential mortgages. Buy-to-let mortgages are not in scope.

The FCA has identified a relatively small proportion of borrowers who took out a mortgage pre-crisis, are on a reversion rate and up-to-date with repayments, and would benefit from switching to a new deal but cannot. These customers are sometimes referred to as ‘mortgage prisoners’.

Taking account of the way lenders tell us they treat existing customers, we have identified around 30,000 such customers with authorised mortgage lenders. We also believe there may be customers up-to-date with repayments on a reversion rate in mortgage books owned by non-regulated firms – we estimate around 120,000 may benefit from switching.

The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.

On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).